Market Beat: Investing in beer and wine stocks
March 25, 2013
TRUCKEE, Calif. — In the past, I've been commenting on the recent merger activity in the beer industry. AB Inbev completed a hostile takeover of Anheuser-Busch in 2008 and is now trying to take over Grupo Modelo, the makers of the popular Corona beer. The Grupo Modelo acquisition is currently tied up in federal court as the US Justice Department is reviewing the case.
While the merger is under Justice Department review, AB Inbev has also been slapped with a couple of lawsuits from beer drinkers. In lawsuits filed in San Francisco, New Jersey and Philadelphia, AB InBev has been accused of watering down its beer and falsely stating the alcohol content of Budweiser beer. AB InBev denies the charges. The drinkers filing the suit claim that they add extra water to their beer and create beverages with much lower alcohol content than is stated on the labels.
Since the beer articles came out, I've had a lot of readers asking me if it was possible to invest in wine stocks. The answer is yes. There are more than a million winemakers worldwide and most are relatively small, privately held operations. There are three companies responsible for making or importing about 50 percent of the wine consumed in the United States. They are Constellation Brands, E&J Gallo and The Wine Group.
Of the three, Constellation Brands is the only one that is a publicly traded company. They were started in 1945 in New York and today are one of the dominant companies; they have a market cap of about $7.5 billion. The wine brands they carry include: Robert Mondavi, Clos du Bois, Estancia, Franciscan Estate and more. E&J Gallo is based in Modesto and is the largest family owned winery in the United States.
Globally, one of the largest wine makers is Diageo, based in London, England. Their wines include Blossom Hill, Sterling and Beaulieu. They are a $77 billion behemoth with more than 27,000 employees and are also involved in beer and other spirits.
There are also a handful of wine investment funds that buy and hold rare vintages. Worldwide, there are a dozen or so of these funds. They are for sophisticated investors and have minimum investments ranging from $20,000 all the way up to $250,000. What they do is buy classic Bordeaux wines and hold them for price appreciation; some of these wine funds have had respectable returns over the last few years.
Global wine consumption is projected to increase at a steady rate over the next few years.
Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.